Ted Grant

Will There Be A Slump?

The prolonged upswing of British and world
capitalism since the second world war, in the areas where the
capitalist system has been maintained, calls for an examination
of the basic ideas of Marxism on the question of economic
development. If there is a fundamental change in the working of
the system then it is necessary for Marxists to make a suitable
reappraisal. Marxism represents the concentrated analysis of the
laws governing the development of society. In the field of
economics, the laws underlying the development of capitalist
society have been worked out and explained by Marx. Despite
extension and deepening in the works of Lenin and Trotsky, these
basic laws have remained fundamentally the same for more than a
century.

Undoubtedly the economy, since the second world
war, has developed on somewhat different lines to those following
the first world war. But every decade of capitalist development
has tended to be different to every other decade. The basic laws
underlying the development of capitalist economy have, however,
remained intact.

The immediate perspective in the economy is of
a rise in production, this year, of probably 6 per cent. This in
its turn will mean a strengthening of the demand of the working
class for a bigger share of production. Hence the concessions of
capitalism in the field of wages and hours in the last few
months. The victory of the railway workers has been predicated by
this fact.

The world economy is beginning to move towards
slump (or recession - a small slump that does not deepen into
long-lasting depression - according to the definition of the
capitalist economists). Until recently, there has been quite a
high rate of development of the economy in all the major
capitalist countries, in fact largely throughout the capitalist
world. This development in Western Europe and in many of the
'undeveloped' areas of the world is beginning to slow down. There
are already signs in the fall of prices of shares on Wall Street
- always a sensitive, if not always correct, barometer - that the
economy of the United States may have its downswing in a deeper
'recession' or 'slump' soon.

The huge investments in industry, the turn to
mechanisation and automation, increase, at the same time, the
amount of constant capital in proportion to variable capital, ie
the capital invested in machinery, buildings, plant etc, rises in
proportion to the amount invested in wages. This must lead to a
fall in the rate of profit. The present decline of investment is
a reflection of the capitalists' realisation of this tendency,
even though they do not understand the reason for it.

However, these swings, up and down, are normal
to the development of the trade cycle, at every phase of the
development of capitalism. What has to be established is not the
episodic differences, but whether there is a new element, such as
the intervention of the state, which changes fundamentally the
movement of the trade cycle from anything experienced by
capitalism in the past.

The basic Marxist postulates, on this question,
are that the exploitation of the working class by the capitalists
means that the surplus value, created by the workers, is
accumulated by the capitalists and then reinvested in industry.
The explanation of the development of the economy under these
conditions is the division of the economy into 'department 1'
(production of the means of production) and 'department 2'
(production of the means of consumption). The surplus produced by
the working class, over and above its own subsistence is, apart
from a small part consumed by the capitalists, ploughed back into
production. The whole historic role of capitalism has been the
development of the productive powers of society by the use of the
surplus in capital construction. Hence the growth of production.

Competition between different capitals produced
the need for ever greater productive equipment. This, in its
turn, meant the gradual accumulation and concentration of capital
in fewer and fewer hands. The continuous expansion of expenditure
on constant capital (C) or means of production, in relation to
the amount spent on variable capital or wages (V), in its turn
produced the tendency of the rate of profit to fall. This
is confirmed in different language by all serious economists
including Keynes. Even the university professors, on studying the
data, are compelled to admit the truth of this proposition for
the modern epoch, even more than in the past.

The fundamental cause of crisis in capitalist
society, a phenomenon peculiar to capitalist society alone, lies
in the inevitable over-production of both consumer and
capital goods for the purposes of capitalist production. There
can be all sorts of secondary causes of crisis, particularly in a
period of capitalist development - partial over-production in
only some industries; financial juggling on the stock exchange;
inflationary swindles; disproportions in production; and a whole
host of others - but the fundamental cause of crisis lies in over-production.
This in turn, is caused by the market economy, and
the division of society into mutually conflicting classes.

None of this has been changed by the
developments of the period since the second world war. This can
be demonstrated by a comparison of the inter-war period,
pre-1914, and the post-second world war period.

Since the second world war, because of the
pressure of competition from America, the rise of Soviet and
Eastern European and Chinese production as a formidable threat to
capitalism projecting into the future, the economy of formerly
relatively backward economies such as those of Japan, Britain,
France and Italy has had to be rationalised. The development of
world production has meant that competition between national
captitalisms has forced further modernisation and further
division of labour and specialisation even between the major
capitalist nations. (This is one of the reasons why the Common
Market, on however shaky a basis, has been formed, provoking in
its turn the Outer 7(1) countries grouped round Britain as a reply). The
'national' economics thus work more and more together with the
state and using the state as a lever. Monopoly capitalism and the
state intertwine and fuse.

In his book Trends and Cycles in Economic
Activity William Fellner demonstrates that the trade cycle in
the post-war period has not been fundamentally different to the
trade cycle of the past:

"While averaging for decades smooths out
much of the cyclical instability, the decade-averages remain
noticeably influenced by the somewhat depressed character of the
decade of the 1890s as a whole, and by the war and post-war
prosperity of the entire decade of the 1940s...a basic tendency
towards a proportionate rate of increase of between 30 per cent
and 40 per cent per decade...when two decades are 'abnormal', in
opposite directions as the 1930s and the 1940s, the tendency
asserts itself for a 20-year period."

Dealing with the United States, JA Schumpeter
in Business Cycles declares: 'The number of minor
interruptions between the major downturns seem to have been
greater in the United States than in most European countries,
even though the secular trend has been particularly steep in the
United States.' Dealing with the difference in the trade cycle
between Britain and America, to explain the present tendency
Fellner points out:

"It may be that the British cycle is still
somewhat lengthier than that in the USA. Earnest students record
that in the 19th century the length of the British cycle was
between seven and ten years; American investigators found a cycle
of somewhat shorter duration...The difference may be due to the
structure of the economy, or even to a difference in national
temperament. One might say that the Americans are quicker off the
mark, in reacting to a change in circumstances, or one might say
that they are more volatile.

"For a number of years the British cycle,
and that in continental Europe also, has been out of phase with
the American cycle...The primary cause of this divergence was the
larger scale of the American defence effort, even in proportion
to the size of her economy, after the Korean episode."
(2)

It is true that the rate of growth in the
period 1870-1914 was at a higher tempo than in the period between
the wars, but that reflected the fact that the relatively
progressive nature of capitalism had changed. The world war of
1914-18 marked a definite stage in the development of capitalism.
This was reflected in the impasse in which the private ownership
of the means of production and the national state had landed
society.

The economic upswing, following the second
world war, is due to a whole series of factors. There is nothing
'unique' in such an upswing. The possibility of such an economic
upturn of capitalist society was foreseen by Trotsky in his
criticism of the blind mechanical conceptions of the Stalinists:

"Will the bourgeoisie be able to secure
for itself a new epoch of capitalist growth and power? Merely to
deny such a possibility, counting on the 'hopeless position' in
which capitalism finds itself would be mere revolutionary
verbiage. There are no absolutely hopeless situations (Lenin).
The present unstable class equilibrium in the European countries
cannot continue indefinitely precisely because of its
instability...

"There will be no new boom of world
capitalism (of course, with the prospect of a new epoch of great
upheavals) only in the event that the proletariat will be able to
find a way out of the present unstable equilibrium on the
revolutionary road." (The Third International After Lenin,
pages 64-5)
[source]

And again:

"From Marx on, we have been constantly
repeating that capitalism cannot cope with the spirit of new
technology to which it has given rise and which tears asunder not
only the integument of bourgeois private property rights but, as
the war of 1914 has shown, also the national hoops of the
bourgeois state, (ibid page 52)
[source]

"Politics, considered as a mass historical
force, always lags behind economics...the international
capitalist system has already spent itself and is no longer
capable of progress as a whole...

"Theoretically, to be sure, even a new
chapter of a general capitalist progress in the most powerful,
ruling, and leading countries is not excluded." (ibid page
81) [source]

Dealing with the trade cycle, The American
National Bureau of Economic Research has prepared a table, dating
back about a century. This table shows the peaks and troughs of
economic activity in the United States in this period. (See Table 1)

To these could be added the peak of 1953, the
trough of 1954, the peak of 1957, the trough of 1958, the peak of
1959-60 and the subsequent decline.

What then are the basic reasons for the
developments of the post-second world war economy?

The political failure of the Stalinists and
the social democrats, in Britain and Western Europe, created the political
climate for a recovery of capitalism.

The effects of the war, in the destruction of consumer and
capital goods, created a big market (war has effects similar to,
but deeper than, a slump in the destruction of capital). These
effects, according to United Nations' statisticians, only
disappeared in 1958.

The Marshall Plan and other economic aid assisted the recovery
of Western Europe.

The enormous amounts of fictitious capital, created by the
armaments expenditure, which amount to 10 per cent of the
national income in Britain and America.

The new market for capital and engineering products, created
by the weakening of imperialism in the undeveloped countries,
which has given the local bourgeoisie the increased opportunity
to develop industry on a greater scale than ever before.

All these factors interact on one another. The increased
demand for raw materials, through the development of industry in
the metropolitan countries in its turn, reacts on the undeveloped
countries and vice-versa.

The increasing trade, especially in capital goods and
engineering products, between the capitalist countries,
consequent on the increased economic investment, in its turn acts
as a spur.

The role of state intervention in stimulating economic
activity.

All these factors explain the increase in
production since the war. But the decisive factor has been the
increased scope for capital investment, which is the main engine
of capitalist development.

The relatively progressive role of capitalism
between 1870 and 1914 consisted in the development of the
productive forces, at a fairly rapid rate. It is true that
sufficient productive forces had been developed for the working
class to take power, ie the material conditions for workers'
power had been created by the previous expansion of the
productive forces under private ownership. Under workers' power
the productive forces would then have developed faster. But
nevertheless, so long as capitalism can develop the productive
forces at a fast pace, it serves the need of progress and can
maintain itself so long as it serves this purpose.

Since the second world war, capitalism, in an
uneven, contradictory fashion, has suffered such a period of
'rebirth'. It is true that it is a temporary uplift of a rotten
and diseased economy, reflecting the old age of capitalism rather
than its resilient youth, that it shows all the feebleness of a
decayed system. But even within the general decline of capitalism
such periods are inevitable so long as the working class, through
faulty leadership, fails to end the system. There is no such
thing as a 'last crisis', a 'last economic slump' of capitalism,
a 'ceiling on production' or any of the other primitive ideas put
forward by the Stalinists during the great depression of
1929-1933. Nevertheless the enfeeblement of capitalism is
reflected in the revolutionary events following the second world
war.

From the viewpoint of Marxism, this economic
revival of capitalism is not a negative phenomenon only. It
enormously strengthens the numbers and cohesion of the working
class, and of the position of the working class within the
nation. The next break in the economic conjuncture will pose even
greater problems in front of capitalism than in the past.

It is this economic revival, and not the
role of government spending, or the increased role of the state,
which is the main factor explaining the recessions or
little slumps which have followed the second world war. Of course
the increased role of the state with the end of laissez faire had
already been pointed out by Marx and Engels. The tendency of the
productive forces to outgrow the envelope of private ownership,
forces the state to intervene more and more in the 'regulation'
of the economy.

Lenin, Bukharin and Trotsky had shown the
enormously increased role of the state, during and after the
first world war. In his last writings Trotsky had reinforced the
arguments on the increased economic role of the state. The
greatly increased role of the state was explained by the growth
of productive forces, the concentration of capital, the growth of
trusts and the development of monopoly capital. All these
developments had been summarised in Lenin's Imperialism. There
was a fusion of monopoly capital with the state which acted as
the direct agent of big business. This did not mean 'regulation'
or a 'plan' of production in the sense of the economy of a
workers' state. Neither did it mean an abolition of the
domination of the market. Within the limits, especially of arms
production, it increased the contradictions within capitalism.
The 'regulation' was principally at the expense of middle-sized
and small business, as in the recent credit squeeze and the
increase in the rates of interest, which affect big business very
little but are burdensome to the minor capitalists.

The subsidies to big business, the
denationalisation of profitable sectors of nationalised industry
are an indication of the real role of the state as the tool of
the banks and trusts. The state has taken over those sections of
industry rendered unprofitable by the development of new
industries and techniques, and by the need for huge capital
expenditure and modernisation, which were not economic or
profitable for capitalism.

In the case of Britain there was the need to
transform the basic industries: coal, gas, electricity, transport
and steel, for purpose of rendering engineering, shipbuilding,
chemicals and other industries, competitive on world markets.
Thus the measures of state capitalism, which constitute an
important argument for statification, do not in themselves alter
the basic laws of capitalism.

But the factors which have assisted in
maintaining full or relatively full employment in the main
capitalist countries, that is expenditure on armaments, have led
in their turn to the persistent and steady inflation. In West
Germany, which did not have such a burden, taking advantage of
the difficulties of her rivals in this connection, and with a
large reserve of labour from the former German territories,
Czechoslovakia, and East Germany, the price level up to the
recent period was relatively stable. In addition, the amount
ploughed back in capital investment was correspondingly higher.
Now, with full employment, they are beginning to face the same
problems as their rivals:

"In West Germany the non-recurrent
elements in the process of expansion were particularly striking;
large scale unemployment early in the 1950s and the high rate of
immigration of labour from East Germany; gaps left in the stock
of physical resources by the destruction of the war, by the
post-war dismantling of plant, and by the partitioning of the
country. These factors in combination yielded high rates of
profit in a process of expansion distinguished by a rapid growth
of employment and by a high rate of investment, in extending the
capital structure." (The Economic Bulletin for Europe, volume
3, 1959)

The economic experts of the United Nations,
regarding with dismay the last few slumps, have come to
understand that the bourgeoisie has by no means been enabled to
solve the economic problems facing their system. The Annual World
Survey of the United Nations published in 1959 contained the
following wry estimate:

"No special factors of major significance
can help to explain the downturn in United States economic
activity in 1957-8 or the virtual standstill in total West
European production in the course of 1958...Regardless of the
extent to which the recession may have been inherent in the
build-up of excess capacity or might have been accelerated by
government restriction, it is evident that the world has not yet
learned how to avoid the costs of recurrent industrial
slumps."

And again commenting on the sharp character of
the fall in 1958...'Nor would it be wise to assume, on the basis
of the post-war experience, that in the future all recessions are
bound to be short and mild.'

Incidentally, the United Nations' economists
estimate that the last 'recession' cost the United States
billions of dollars in both real income and capacity to import.
Reflecting the illusions of the 'under-consumptionists' who
believe that all will be well if the capacity to consume is
maintained, the United Nations' economists speak of 'an array of
automatic stabilisers, including progressive tax systems, social
security, and farm support programmes...' But even they make the
point:

"It is important to bear in mind, however,
that stabilisers can only slow down a rate of decline; they
cannot in themselves initiate an upturn...While depressions of
the order of magnitude of the nineteen thirties have become
unthinkable both on social and on political grounds, recessions
of greater duration and depth that those heretofore experienced
in the post-war years cannot he prevented by exclusive reliance
on any automatic stabilisers." (World Survey, page 4)

The development of the economies in Western
Europe, Japan, the United States and Britain - with this or that
national difference - all demonstrate the same phenomenon: the
increase in capital investment, as the key to the economic
upswing in the decade and a half following the second world war.

Apart from the subsidies to private industry,
which amounted to 385 million in Britain in 1958, and the
enormous expenditure on armaments, which constitutes unproductive
expenditure, in many of the countries of Western Europe - but
particularly in Britain - the ruined basic industries were
nationalised, in order to modernise them so as to serve as useful
instruments in increasing profits of private enterprise,
especially in the more modern industries.

Those sections which showed profitable
possibilities, such as steel and road transport, were
denationalised by the Tories and now the suggestion has been made
of hotels and catering, and non-railway properties and activities
of the railways. Thus the nationalised sector which constitutes
20 per cent of the economy in Britain serves as the handmaiden of
private industry.

Even if these industries had remained in the
hands of private enterprise it would have meant large
expenditure, as in America, in order to modernise them. But the
investment in these fields is still only half that of the
industries which have not been nationalised. As the total of
capital investment in 1957 was 14.7 per cent, the highest level
of investment in Britain since the war, it can be seen that the
nationalised industries would have invested roughly five per cent
as against 10 per cent invested by private industry. At the same
time the output of the industries under private enterprise is six
or seven times the output of the industries under the control of
the state. This means that it is the private sector of the
economy which dominates over industry in the economy as a whole,
and not vice-versa. This can easily be demonstrated by the
statistics given by the Census of Production published in 1958
(See Table 2)

What do these statistics show? On two
fundamental problems they provide an unanswerable reply to the
theories of the revisionists. The argument of Strachey, Crosland,
Gaitskell and others is that the relative share of the working
class in the increased production has increased. These figures
demonstrate irrefutably that the share of the working class,
relative to the total production, has fallen. Statistics from
America, Italy, Japan and West Germany would undoubtedly
demonstrate the same thing.

It is true that the absolute standard of living
has increased (overtime, women working, increased productivity of
labour, bonus schemes, full employment etc would be the
explanation) but the relative share of the working class has
dropped. So the 'under consumptionist' idea that the capitalist
crisis has been overcome by the increased share of the consumers
is demonstrated to be palpably false. The share of the
'consumers', including the capitalists, has dropped from
approximately 67 per cent in 1938 to a little over 54 per cent in
1957 of the total 'cake' of national production.

The increase in productive capacity in Britain
has been 3 per cent a year since the war - twice as high a rate
of increase as that achieved in the inter-war period and probably
faster than for many years before 1914. After the war until 1951
one fifth of output was offset by increases in the price of
imports. Output rose between 1946 and 1951 by 14.5 per
cent...Real national income by 11.5 per cent. Between 1951 and
1955 real national income rose by 15.5 per cent as against a rise
in gross domestic product of 12.5 per cent. Between 1955 and 1958
gross national product rose by 5 per cent as against a rise in
production of only 3 per cent. Between 1951 and 1958 gross
national investment, savings and depreciation increased from 15
per cent to nearly 20 per cent. Net national income rose from
under 7 per cent to over 11.5 per cent.

From the point of view of Marxism, in any case,
a continuing rise in the share of national production by the
working class, in itself at a certain stage would cause crisis
and slump by cutting into the share of the national income
going to the capitalists, thus over a period causing a fall in
the rate of profit. This is so because it is only out of the
surplus created by the workers, that the capitalists find the
wherewithal to invest. Meanwhile the continuing technological
progress means that the capitalists are compelled to invest (in
real terms leaving aside the fall in the value of money) more and
more in production for the purpose of competing on the national
and international markets. Thus the explanation of the post-war
period of ascent cannot be explained by the increase in the
standard of living - a la Crosland and Jay.

On the other hand the statistics of national
production, which, allowing for marginal errors, are an accurate
description of the national economy from a capitalist point of
view, demonstrate the shallowness of the theories of Maurice Dobb
and of various Stalinists that it is the increased role of the
state which has prevented another 1929. It is true that the role
of the state has increased. But the statistics demonstrate the
limits of this phenomenon. From 1938 to 1957, including the
expenditure of the national and local authorities on building,
social services and armaments, the total proportion of the
increased national income spent by the state amounted to 14.7 per
cent of the national income in 1957. If one includes also the
figures of expenditure of the nationalised industries it would
amount to about 20 per cent of the national income, or one fifth,
in itself a gigantic figure but not sufficient to determine the
basic movement of the economy. It is not state industry which
dictates the movement of private industry, fundamentally, but
private industry which dictates the movement of state industry.

In an epoch such as this it is necessary for
Marxists to have an answer to any tendencies, bourgeois,
social-democratic and revisionist (this is particularly necessary
in the political climate created by the temporary upswing of
capitalism).

A restatement of the fundamental Marxist
doctrine on this question puts the whole problem in its proper
perspective. There can never be a slump in an economy which is
state-owned, as far as 'the commanding heights of the economy'
are concerned, because it is then possible to plan production on
the same lines as an individual factory. If mistakes are made, as
in the plan of the Soviet bureaucracy, it is easy to overcome
this by simple administrative decree.

The only limits to production, apart from the
mistakes of the bureaucrats, their swindling, inefficiency, red
tape, etc, is the level of production and the productive forces
themselves. They can plan to produce consumer goods, capital
goods, rockets or cannon, or what-have-you, but so long as the
level of the productive forces is taken into consideration, and
due limits of proportion observed, with this or that error,
nevertheless the entire capacity of production (leaving out
discrepancies in raw materials etc) can be used to its utmost
limits! That is the fundamental distinction between an economy
based on state ownership and an economy of partial ownership by
the state, an economy of state capitalism.

Why cannot expenditure by the capitalist state
solve the problems of the economy in a capitalist society? In an
economy where private ownership is the dominant form of
production, production remains for the market. All taxes must
come from the economy itself, either they must come from the
profits of the capitalists, or they must cut into the income of
the working class. In either case it cannot over a period prevent
crisis. To cut into the income of the capitalist would cut into
the rate of profit; money spent by the state, taken from the
pockets of the capitalists, cannot be spent by the capitalists.
Similarly, money extracted from the workers in taxes for the
benefit of the capitalists and their state, cuts into the market
for consumer goods. Thus, either way, the state eats into the
vitals of the economy. The state in the modern period has become
a monstrous incubus and parasitic burden on production. What the
state gains on the swings, the capitalists lose on the
roundabouts. The worst thing from a capitalist point of view is
for the state to cut into the profits of the capitalists. For
that aggravates the crisis while 80 per cent of the economy
remains in the hands of private 'enterprise'. That is why as
speedily as possible the capitalists get their state to lessen
the taxes on profits and especially the allowances for new
investments. The Tory government (and the Labour government after
them) systematically lessened the taxes in this way.

On the other hand the various Keynesian
'solutions' of this problem are basically unsound. If the state,
by 'deficit financing', as advocated by Gaitskell, spends in
effect money it does not possess, it means that there will be an
inflation of the currency, and over a period it would amount to
the above propositions on the distribution of the national
income. The only difference being that crisis would be aggravated
by the ruin of the currency. The reason for this would be the
inevitable rise of prices, other things being equal, to the same
proportion as the increase of the money in circulation not backed
by goods or money.

As stupid is the suggestion by Gaitskell, and
echoed by others, of an increase in the expenditure of the
nationalised industries. The nationalised industries cater as
basic industries for the capitalist economy as a whole. The money
for these industries, in so far as it is not provided on'normal'
lines to be financed by the market, must be gained by deficit
financing or taxes, and thus cuts into the amount that can be
spent by industry as a whole. The economic unreality of the
suggestion that increased expenditure by nationalised industry
could solve a crisis of production is indicated by the present
crisis in the coal industry. The railways, electricity, gas and
other nationalised industries are dependent (apart from
individual consumption) on the orders of private enterprise, of
the engineering, chemical, food and other industries. A fall in
production in these industries means inevitably a fall in
production in the nationalised industries. The crisis in the coal
industry demonstrates the truth of this proposition even during
the current boom. It is only because of the boom that the
government can afford an accumulation of tens of millions of tons
of coal at the pit-heads.

Expenditure on armaments is expenditure on
ficticious (unproductive) capital. Expenditure on public works,
roads, hospitals, schools is necessary if marginal expenditure
(not directly linked to production, but necessary to it) but can
only be an amelioration of the problem, for the reasons sketched
above. Incidentally the Radcliffe Commission demonstrated
conclusively the fallacy that the economy was controlled by
monetary measures. In fact, as Marxists have always argued, the
reverse is the case. The development of the economy in the
direction of inflation or deflation compels the raising or
lowering of the bank rate. The general conclusion of the
Committee was that:

"Monetary measures cannot alone be relied
on to keep in nice balance an economy subject to major strains
from both within and without. Monetary measures can help, but
that is all...We suspect that extravagant hopes would not have
been placed in monetary policy in recent years had it not been
for the desire above all to avoid increases in taxation and
reduction in government expenditure. The gradual diminution of
the burden of taxation should make it easier for more realistic
views to prevail in the future."

In other words, far from regarding the
expenditure of the state as a saving grace and a blessing, the
bourgeoisie is constantly groaning at the burden of the state (a
necessary Old Man of the Sea it bears on its back). An increase
in state expenditure on police and army to defend the loot of the
bourgeoisie, and social services necessary to keep the social
demands of the masses in check, education etc, etc, means less
in the pockets of the capitalists themselves. In fact, since
the war, in proportion to total income and the increase in
wealth, while armaments' expenditure has enormously increased,
there has been a neglect of the services, in real terms, which
indirectly cater to the needs of the economy. The Times Review
of Industry in December 1959 comments: 'The cumulative effect
of under-investment in "non-industrial" public assets -
is likely to give rise to economic and social problems of a major
order.'

In the United Nations' World Survey there
is an explanation of the slump of 1957-8 which fits in with the
theoretical conceptions of Marxism: 'There is now virtually
unanimous agreement that a substantial building up of excess
capacity (in Britain and America) throughout the economy in
1955-7 was a major factor in bringing on the recession in
1957-8.' Meanwhile, the first flush of capitalist expansion since
the war is coming to an end:

"Contrary to widespread illusion about the
magnitude of the 1955-7 boom - fed in part by the self-same fear
of inflation - the true dimensions of the expansion were
modest indeed. In the US, even in the peak quarter of 1957,
the volume of industrial production did not exceed the
pre-recession peak level of 1953 by more than six per cent and at
the low point of the 1957-8 recession the volume was only three
or four per cent above that of the corresponding period of 1951 -
fully seven years earlier...Although the rate of growth has been
higher on the average in other industrial countries, most notably
France, Italy, the Federal Republic of Germany and Japan, it has
been quite modest, especially in the United Kingdom."
(ibid, page 6)

The 'excess capacity' in industry in Britain is
a symptom of over-production of capital and the limits of the
market. There have been a series of partial crises, affecting
different sections of the economy in the past period,
'excess-capacity' of capital, industry, consumer over-production,
over-production of raw materials, food, etc, etc at various
stages and at different times. It was only the simultaneous
concatenation of all factors of crisis which led to the
devastating depression of 1929-33. Gradually the proportion that
pertained in the 1920s in a whole series of economic sectors are
assuming similar proportions at the present economic tide. At
each successive stage the assumptions of the economic experts of
the United Nations and of the bourgeoisie as a whole have been
falsified. The industrial upswing in the Western countries
produced in its turn a demand for raw materials and foodstuffs
(primary products). This led to an increase in production in the
'undeveloped areas'. The boom in production of minerals etc, led
to an increase in the price of these products (the market still
dominates nationally and internationally) and an improvement in
the terms of trade. But this in its turn, according to the strict
logic of capitalism, led to 'over-production' and a fall in
prices. The fall in the prices of primary products in the
recession of 1957-8 alone amounted to between seven and eight per
cent - equivalent to six years' lending to the undeveloped areas
by the International Bank for Reconstruction and Development at
1956-7 rates.

According to the United Nations' survey 'the
terms of trade in the late 1950s appear to be about the same as
in the late 1920s'. The idea has been sedulously disseminated
that a solution to the problems of capitalism can be found in the
development of the undeveloped areas. It is true that a big
increase in capital expenditure will ameliorate the problem for a
short period of time but it can only render it worse at a later
stage. However, on a capitalist basis, the limits of this
development must be seen. The United Nations admits:

"It cannot be said that the present level
of international aid is a negligible contribution to the
development of the poorer countries; in the aggregate it fully
offsets the decline in the share of private foreign capital in
relation to the exports of primary producers since the nineteen
twenties [only offsets! - EG]. Yet it needs only to be realised
that on a per capita basis the total assistance amounts to only
$5 per annum for the contributing countries and to no more than
$2 per annum for the receiving areas, to see how grossly
inadequate is the sum to permit a significant breakthrough in
economic development."

The ferment throughout the colonial world is
based on these figures. It is a case of capitalism threatening to
crack at its weakest links. This explains the change in the
political policy of imperialism. This will have immense political
and economic consequence at a later stage.

There is a widening gap between the growth of
the economy and the rate of expansion of the undeveloped areas
and the advanced metropolitan centres. Due to the growth in
population of the colonial and ex-colonial areas the disparity
has been increased. Between 1938 and 1955-7 there was a
substantial rise in the output of food and raw materials, but
this amounted to only two fifths of that of manufactured
products.

This in its turn has led to the problem of the
increasing gap between the undeveloped areas of the world, and
the metropolitan centres. Due to the increase in production in
the industrial countries, despite increases in industrial
production too, the undeveloped countries are further behind in
industrial growth than before the war. At the same time the
development of population in these areas means that the absolute
level of the standard of living, which is increasing at the
present time in the industrial countries, is falling in the
so-called under-developed areas, as at best the increase in the
means of subsistence and industrial production is hardly keeping
pace.

The bourgeoisie had believed that the problem
of the relation of primary producing countries to the industrial
countries had been solved by the rise in the prices of raw
materials and foodstuffs in the first post-war shortages. Indeed
they were worried that the terms of trade for such countries as
Britain would change permanently to the disadvantage of the
industrial countries. The United Nations' economists wrote
learnedly on this problem.

The one thing that never occurred to them was
the inevitable over-production which would follow on the
shortages. Following on the demand, a huge investment in copper,
lead, tin, wool, cotton and other raw materials took place,
leading to a surplus being produced and hence over-production.

In the capitalist world, in spite of the
increase of trade, in comparison with 1929, there has been a
fall in the proportion of world trade. This means that on the
world market over a period the crisis of capitalism will be
aggravated. The different capitalist powers will not be able to
find a means of escape in the national contradictions except in
the world market at each other's expense. The total trade of the
primary producing countries has only increased by one third in
proportion to that of manufactures. If oil is deducted from the
total it would fall to one seventh and petrol involves mainly the
countries in the Middle East.

A similar phenomenon to that of the post-world
war one period is the relative decline in the position which
America had established immediately after world war two. The
increase of production up to 1957 has been 14 per cent in the
United States and 32 per cent in Western Europe. In Western
Europe, over five years, from the early months of 1953 until the
end of 1957, the rise in industrial production was 40 per cent.
In America, from mid-1954 to mid-1957, the increase in industrial
production was only half that, 20 per cent. In Britain, between
the peaks of 1953 and 1957, the increase was only six per cent.
'The primary (reasons for the fall in production): one among them
was a decline in fixed investment activity, and especially in
business investment.' (UN World Economic Survey , page 181)

Dealing with the situation in Britain the
United Nations' World Economic Survey continues:
'The UK economy was stagnant from the end of 1955 onwards, with
minor ups and downs. Industrial production in that country fell
during 1956 below the level attained in the latter months of 1955
and did not subsequently exceed that level even at the end of
1958.' Explaining the fall in the economy also in Western Europe
and Japan:

"The preponderant factors in recent
economic developments in Western Europe and Japan have been the
weaknesses in fixed investment and in export demand. On the
whole, changes in government expenditure had not contributed to
the previous upswing and they did not influence developments
in 1958 either." (ibid , page 192)

Dealing with the capitalist and especially the
American economy since world war two, Fellner points out
correctly:

"Indeed, the period over which the economy
has shown considerable resistance to downward impacts is long
enough to suggest that, of the 'artificial' stimuli (here
listed), only the high military expenditures could have
much relevance to the period as a whole...Also the
mildness of the 1948-9 recession in particular could scarcely be
attributed to military and foreign aid expenditures because the
recession and the beginning of the recovery fall in the span
which followed the gradual reduction of war-time spending and
which preceded the resumed military expenditures of the
Korean hostilities.

"During the span 1947-50 in which the
recession and the early recovery fall, government spending was
considerably higher relative to national income than in the
1920s (arms expenditure was many times as great) but mostly lower
than in the depressed 1930s and the tax structure had become very
much stiffer."

A similar process can be seen in the recession
of 1957-8. It was not government expenditure but the development
of the economy itself which pulled the economy in Western Europe,
Britain, the United States and other countries out of the
recession, ie the 'automatic' workings of the economy itself. In
fact the bourgeoisie, the economists of the United Nations, and
serious economists in Britain and America, were pleasantly
surprised by the brief character of the recession in 1958-9.
Succeeding it there was a typical capitalist boom, in which
production leaped ahead in Britain, Western Europe, Japan and the
United States.

Commenting on present claims to have solved the
problem of consistent growth Oscar Hobson writes in the February
issue of the Banker: 'Shades of 1929, when the problem of
perpetual boom-cum-stable price level was almost everywhere
proclaimed to have been solved.'

The economists of the bourgeoisie understand
very well that investment is the key to the rise of the economy.
On page 179 of the World Economic Survey (1959) the expert
of the United Nations writes:

"The economic upswing had been based
primarily on large scale investment in fixed assets and a rapid
growth of private expenditure on automobiles and other durable
goods. Unlike the Korean boom, no part was played in
the process by rising government expenditure. On the contrary
it was the levelling-off of or decline in government expenditure
as the Korean conflict ended that released resources for use in
the private sector. In some countries, however, exports rather
than domestic expenditure provided much of the impetus to higher
activity."

Writing in the Financial Times , the
'orthodox' former Financial Secretary to the Treasury, Enoch
Powell MP, says:

"This (increase of production in 1959 in
Britain) domestic increase was part and parcel of a general trade
recovery, just as the lull which had preceded it belonged to a
widespread trade recession: both were participated in by
countries whose governments were purporting to behave quite
differently...the government have taken out of the economy
by taxation and borrowing from the public as much extra as they
have put into it by increased expenditure.

"This, in turn makes it unlikely that the
government has in fact, as opposed to intention, done anything to
'stimulate the economy'. the recovery, like the recession, has
taken place in response to other forces of a wider and different
character; or, if you like, in the immortal words of the steward
to the sea-sick lady: Madam, you don't have to do anything, it
does itself.

"This is perhaps on theoretical grounds -
though hardly on any others - to be regretted. Once again we have
been denied the privilege of observing at first hand a British
government coping with a recession on orthodox Keynesian lines.
We still do not know approximately what would be the
result if, in the face of a persistent fall in propensity to
spend, a British government equally persistently increased its
expenditure and financed it by the creation of money through
floating debt. At any rate that was not the history of the
1958-60 recovery." (Financial Times, 7 January 1960).

Here Powell is arguing on the lines of a market
economy, that the attempt of the state at pump-priming will no
more solve the problem than the Rooseveltian pump-priming of
before the war. Powell understands some of the limitations of a
capitalist economy; that what the government 'puts in' is
determined by what it can take out in the form of taxes etc, so
long as it is a market economy based on private enterprise.

In the Financial Times, an American
economist, writing on the prospects for the American economy, is,
of course, filled with optimism. But even he is cautious. Dealing
with the factors leading to the rise in the American economy, he
comments:

"In all probability the next decade
will not be marred by a serious depression...There will be
changes of pace, and we should count on a brief dip or two; but
worse than this we do not expect. Since the depression decades of
the 1930s, Americans have learned a good deal about the
functioning of their economy...The resurgence of faith in what a
market economy can do has been important in maintaining consumer
spending in recessions; unemployment compensation and improved
asset positions and credit facilities have also
contributed..."

The last factors mentioned can only be a sop to
a declining economy and cannot maintain the economy on a stable
foundation for any length of time. These factors have been in
existence in Britain since after the first world war, without
affecting the economy fundamentally. However, there are certain
factors which have kept the economy on an even keel. The amount
spent on research and development of new techniques and products
in the United States last year amounted to $12,500 million and
out of this $9,000 million was contributed by private industry in
the United States. The real explanation of the protracted boom in
the United States the above economist gave in the following
terms:

"The dependence of firms on new products,
materials, methods for survival and growth in a competitive
economy forces their introduction as quickly as feasible, lest
the temporary differential profits which pay for research are
lost. Since technology does not pause for economic recovery, new
investment now can operate to shorten recessions and lessen their
severity."

But such a process cannot continue
indefinitely. No firm is going to invest in new techniques and
products if the sale of these will be lower than the
previous sales of the product. If their returns will not cover
their margins, plus at least the same profit as formerly, there
would not be any point in continuing to plough in good money, in
order to recover what has already been invested. Moreover, the
rate of profit must decline over a period with continually new
investments, to such an extent as not to be compensated by the
increased surplus value, even though there was an increased rate
of exploitation with an increased productivity of labour.

The Financial Times of 26 January 1960
reports the activities of the Eisenhower administration: 'It
seems clear that a major revolution in thinking has taken place
in high circles in the US. It adds up to no less than the
rejection of the Keynesian doctrine - at least where periodic
deficit financing is involved.' 'The Budget', again to quote The
Economist's Washington correspondent, reporting the
Administration's viewpoint 'should not merely be balanced over
the business cycle...it should also show a substantial surplus.'
Already in face of the recession of 1958 the Republican
government had insisted on the need to balance the Budget. 'They
did this because of the fear of inflation, which threatened to
get out of hand'.

The new recession bids to be far more serious
and long-lasting than the last. The New York Stock Exchange is a
harbinger of the coming collapse. The Financial Times of
30 January, 1960 in its editorial was already sounding the alarm:

"The disturbing feature in Wall Street's
behaviour is the talk of a new business recession...It is little
more than a year since the USA was suffering from the effects of
the last recession and another downturn in 1960 would be
intolerable...On this side of the Atlantic the odds still appear
against an early business downturn."

The same tale of woe is told by The Times
Review of Industry:

"It is entirely possible that the
prospective 1960 boom will be strong enough to carry through most
or all of 1961 as well. Even if it does, however, its unnatural
birth as the aftermath of the steel strike may make the eventual
recession something more than the mild readjustment to which the
USA has become accustomed since the war." (February, 1960)

Thus the ink had hardly dried on the prophesies
of a new upswing before the first tremors of a new collapse were
being reflected in the press. The capitalists themselves have too
much at stake to share the optimism of the Croslands and the Jays
as to the stability of capitalism. Whatever the exact date, it is
absolutely certain that the unprecedented post-war boom must be
followed by a period of catastrophic downswing, which cannot but
have a profound effect on the political thinking of the
enormously strengthened ranks of the labour movement.

Notes

(1) The
European Economic Community (EEC or Common Market) was formed in
1957. The "Outer 7' was the European Free Trade Association
(EFTA) founded in response to the EEC in 1960. The UK was a
member of EFTA until it joined the EEC.

(2) At the
end of the Second World War Korea was divided. A Stalinist regime
was established in the North and a capitalist regime under US
domination in the South. The Korean War between the two regimes
lasted between 1950-53. Sixteen capitalist powers, under UN
auspices, sent forces under US general MacArthur to the South,
while China backed the North. During the war about 5 million
died.